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Treaty Reinsurance

Treaty reinsurance covers a defined portfolio automatically, efficient, obligatory cover for homogeneous, high-volume books.

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A treaty is a single agreement covering a whole class or portfolio of the cedant's business. Once agreed, cover is automatic; the reinsurer is obligated to accept the risks falling within the treaty's scope.

Proportional treaties

Quota share cedes a fixed percentage of every risk; surplus lets the cedant retain a line and cede the excess above it. See proportional reinsurance.

Quota share, cede 40% of every riskRetained 60%Ceded 40%Surplus, retained line 3 on a sum insured of 10Retained 3Ceded surplus 7 (70%)
Two proportional treaties compared: quota share (fixed %) and surplus (excess of a retained line).

Non-proportional treaties

Excess of loss and stop-loss respond only above a retention. See non-proportional reinsurance.

Efficiency vs. selection

Treaties trade per-risk underwriting for automatic capacity. A disciplined reinsurer prices the treaty using the aggregate behavior of the ceded portfolio, through experience and exposure rating.

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